Dealing with credit card debt
Credit cards offer a convenient way to borrow money to pay for goods and services and can be a useful tool to help manage cash flow. But credit cards can also quickly become an expensive problem if debts are not paid back when the bills come in. There are many reasons that can lead Canadians to credit card misuse such as job loss, unexpected expenses or overspending, but regardless of the cause, they can easily become a gateway to unmanageable debt and unfortunately there is no magic eraser for credit card debt.
Options to eliminate credit card debt
There are basically four ways to deal with maxed out credit cards:
1. Do it yourself credit card help
A lot of people develop their own debt reduction plan to pay off their credit card debt. By sticking to a budget, developing a repayment schedule and being diligent, many people can pay down their debt on their own. BDO offers advice on how to reduce your debt using a 5-step plan that includes performing a careful review of your current financial situation, preparing a budget, trying to negotiate with your lenders to reduce interest, consolidating debt onto a low interest card, refinancing larger/higher interest loans (such as mortgage) and creating a repayment plan. Also check out our credit card debt calculator.
2. An informal proposal by a credit counsellor, debt management or debt settlement company to eliminate credit card debt
Many debt solution providers offer DMPs (debt management plans), debt settlement plans and informal proposals which are essentially different names for the same thing. Each of these options involve a third party organization negotiating with your credit card companies to get a portion of your debt written off, and setting up a repayment plan to pay off the balance you owe. The length and terms of the plan will vary, as will, how, and what fees they charge for their professional services. It’s important to read all of the fine print before signing any contract. There are a growing number of debt settlement companies advertising that they can ‘erase that debt’ or reduce debt by up to 70% and Canadians need to be wary. Regardless of whether it is called a debt reduction program, a Canadian debt program or a debt settlement plan, there are important things to know before choosing a debt settlement company to eliminate credit card debt.
3. Eliminate credit card debt using a formal consumer proposal
If you are considering using a debt settlement company to deal with your credit card debt, speak to us about the option of filing a consumer proposal instead. A formal proposal to creditors is very similar to an informal arrangement and can often be the best solution to eliminate credit card debt to get you back on the road to financial stability.
4. Erase credit card debt and get a fresh start by filing bankruptcy
If you are in a situation where you owe more money on your credit cards than what you earn, are unable to keep up with your monthly bills or make payments on your debts, have collection agencies calling you or creditors threatening to garnish your wages, bankruptcy is a viable option that can help you get the fresh start you need.
Credit Card Education
One of the best ways to prevent credit card debt from becoming a problem is to understand how credit cards work and how you can use them to effectively manage your cash flow. To learn more about credit cards, visit the Financial Consumer Agency of Canada website for information on: